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FOR PRESENTATION BEFORE THEHOUSE COMMITTEE ON APPROPRIATIONSDEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND INDEPENDENT AGENCIES APPROPRIATIONS SUBCOMMITTEE

April 20, 1999

I. Introductory Remarks

Mr. Chairman and members of the Subcommittee, the President’s budget for FY 2000 reflects a sincere effort to meet the Nation’s obligations to its veterans in a fiscally responsible way. There is no question that the statutory caps on spending, as agreed between the Administration and Congress, constrain the request for funding for this Department as they do for every other department and agency. On the other hand, it is also undeniable that this fiscal discipline has produced economic performance that benefits veterans as well as all other Americans.

Nonetheless, the accomplishments we have achieved and the improvements we propose with this budget represent strides in our mission of providing top-quality care and services. The transformation that is well underway in our health-care system, and just beginning in our benefits-delivery system, is powered by an absolute dedication to that mission. Fundamental change in our service-delivery systems is a prerequisite to dramatically improve performance.

This change in where and how we provide care and services is difficult and sometimes controversial. It has been and must continue to be accomplished in full consultation with veterans and other stakeholders. We have found that many of the health-care changes questioned a few years ago are now applauded as significant steps toward better care. Better access through Community Based Outpatient Clinics (CBOCs), primary care, and improved quality are results of the changes we have made. Approval of "Buy-Out" legislation and Medicare Subvention would better enable us to accomplish our mission. We expect the same transformation of our benefits-delivery system. Our comprehensive approach to benefits processing strives for accuracy and real-time information on the status of veterans’ claims. Timeliness will get better when we process claims correctly the first time, and claimants’ satisfaction with our system will improve as they are kept better informed throughout the process.

Our budget request builds on VA’s previous accomplishments and positions us for the future. Here are some of the highlights of our request.

For the Veterans Health Administration (VHA)

The budget provides $18.1 billion, including $749 million in medical collections, to provide medical care to eligible veterans. VA will open 89 new outpatient clinics and treat 54,000 more patients in 2000 than in 1999, a 1.5 percent increase.

We are proposing $50 million in additional funding to help homeless veterans, including $40 million in medical care and $10 million in mandatory transitional housing subsidies. We are asking for a $136 million increase in VA’s efforts to combat Hepatitis C and an increase of $106 million in VA’s long-term care alternative programs.

While not included in the budget, the Administration will continue to seek authorization of a pilot program whereby VA could receive reimbursement from Medicare for covered services provided to certain Medicare-eligible veterans. This program will help us to increase alternative revenues.

The budget includes a legislative proposal to authorize VA to cover the cost of out-of-network emergency care for enrolled veterans with compensable disabilities related to military service. This legislation would ensure that these veterans have access to emergency care when treatment in VA facilities is not an option.

For the Veterans Benefits Administration (VBA)

For benefits processing, the budget provides $860 million, $49 million more than the funding level enacted in 1999. This is a six percent increase and will ensure that compensation, pension, education, and housing benefits to veterans will continue to be delivered while we continue the process of reengineering the way we deliver benefits. Four hundred and forty FTE will be added to help us process disability claims more efficiently.

For the National Cemetery Administration (NCA)

The budget requests $97 million, $5 million more than the FY 1999 enacted level, for the operations of the National Cemetery Administration. This increase will provide funding for the activation and first year operations of four new National Cemeteries.

In other areas (Construction, the Capital Asset Fund, and Smoking Cessation)

We are requesting new budget authority of $296 million for the Department’s construction programs. Our request provides funding for four major construction projects and provides resources for minor construction, a proposed new Capital Asset Fund, and grants for State veteran’s nursing homes and cemeteries.

The Capital Asset Fund is a proposal that would authorize the establishment of a five-year pilot program allowing VA to sell, transfer, or exchange its excess properties and keep 90 percent of the proceeds. VA would then reinvest those proceeds into non-recurring capital needs to benefit veterans.

A significant portion of the money from the fund would be retained by the local area or network in which the property has been disposed. This proposal would also direct ten percent of the net proceeds from sales to local continuum of care for the homeless through the Department of Housing and Urban Development. That money would include assistance to local homeless veterans. We are asking for authority to spend $10 million in FY 2000 to fund the administrative start-up costs of the program.

We’re also asking for $56 million to establish smoking cessation programs for veterans who began to smoke during military service. This program will be designed to reach veterans throughout the country by using contractors.

III. Improved VA Strategic Planning Processes

As a Department, we are placing greater focus on the outcome of our actions and policies. As we develop our long-term vision for the Department and our goals, we are placing greater emphasis on understanding the impact our programs have on veterans and their families. We believe this will help us to better link our resources to programs that benefit our veterans.

IV. Additional Information

Mr. Chairman, those are the highlights of our FY 2000 budget request. Let me now provide you with some additional details.

On VHA’s Budget

In the area of health-care for veterans, our FY 2000 request recognizes the dramatic changes that have occurred in the past four years. In that time, we have changed the organizational structure of the Veterans Health Administration. We have found new ways to help fund our medical programs. We have gotten rid of conflicting and confusing rules on eligibility. And we have changed the culture of VA health-care.

In addition, we have increased the number of veterans treated, improved the quality of our care, and improved customer satisfaction. At the same time, we have reduced the per-patient cost of providing care.

The goal of our Department is to provide world-class quality health-care to as many veterans as possible. We will continue to insure that taxpayers receive full value for the funds they entrust to us. Our resources will continue to be shifted from inpatient specialty care to primary care delivered on an outpatient basis.

VA has successfully organized a system of coordinated health-care delivery focused on continuous quality improvement that is patient-oriented, ambulatory care-based and results driven. We now treat patients in the most appropriate settings for their problems. Veterans have embraced the use of primary care providers and care teams for their health needs.

These strategies will assure the viability of the health-care system well into the next century. They will also prepare VA to continue to meet the diverse health-care needs of the veteran population. We believe that the new VA system should serve as a model for future integrated health-care systems, both public and private.

In 1998, our Department committed to the goals of reducing per-patient cost for health-care by 30 percent, serving 20 percent more veterans, and increasing alternative revenue sources to 10 percent of all Medical Care funding. VA is still committed to meeting these goals, while assuring that quality of care is maintained in our system.

VA is on track towards its long-range goals of 30/20/10. Compared to the 1997 baseline, we project the following results in FY 2000:

This will be accomplished in large measure by continuing to shift excess acute inpatient resources to expand and enhance outpatient care and other types of care in the most appropriate setting.

Medicare subvention would allow VA to collect funds from Medicare for health-care services provided to Medicare eligible, higher income veterans without compensable disabilities. Adoption of this demonstration program is VA’s top legislative priority.

We urge you to work with us this year to ensure Congress passes a demonstration project as soon as possible.

We will not be able to obtain 10 percent of our funding from alternative revenue sources in the future if Congress does not pass the Medicare subvention pilot legislation. If this pilot proves successful in improving outcomes and lowering costs, our goal would be to open up VA reimbursement throughout the system. I ask for your support of the Administration’s proposal in this area.

I have already highlighted some of the major aspects of VHA’s $18.1 billion budget. The $106 million we requested for additional long-term care will allow us to expand our home and community-based care programs for our older veterans. The $50 million for homeless programs will allow us to support 1,385 new community-based beds and treat 12,000 more homeless veterans.

VA is also proposing a change in appropriation language. It would provide for two-year spending availability for up to 5 percent of our resources, excluding those funds set aside due the required deferral of funds medical equipment.

We support this proposal because it promotes more rational spending decisions and recognizes the need for management flexibility during this period of significant change for VA health-care.

As I mentioned earlier, the Administration is requesting authorization of a new smoking-cessation program for any honorably discharged veteran who began smoking in the military. The program would be delivered by private providers on a per capita basis. Any veterans who began smoking in the military would be eligible for this new program, to the extent resources are available. The Administration will seek authorization of this program in the near future.

Once this program is authorized, the Administration will submit a budget amendment requesting an appropriation of $56 million for this new activity. It is estimated that between 500,000 and 600,000 veterans would avail themselves of this valuable program over the next five years.

For Medical and Prosthetic Research, a total of $316 million and 2,838 employees will support more than 2,100 high priority research projects to enhance the quality of health-care of the veteran population. This level of funding will allow us to maintain the operation of research centers in the areas of Gulf War veterans’ illnesses, diabetes, Parkinson’s disease, spinal cord injury, cancer, prostate disease, depression, environmental hazards, women’s issues, as well as rehabilitation centers and Health Service Research and Development field programs.

In these areas, no other federally supported clinical or research entity can initiate or complete such critical and ambitious research activities on behalf of America’s veterans. Our Department will continue to increase the amount of non-appropriated research funding we receive from the private and public sectors.

The Balanced Budget Act of 1997, Public Law 105-33, allows VA to retain all collections from third parties, copayments, per diems, and certain torts after June 30, 1997. These collections are deposited in the Medical Care Collections Fund and are available for transfer to the Medical Care appropriation. The funds remain available to VA until they are expended.

For FY 2000, VA estimates that more than $761 million will be collected through this effort—and revenues will grow to over $1.2 billion by 2004. To accomplish this growth, we are in the process of changing our billing rates to reasonable charges for inpatient and outpatient procedures; identifying more patients having insurance; and improving our debt collection efforts.

The Medical Administration and Miscellaneous Operating Expenses, or MAMOE, activity is requesting $61.2 million in appropriations to fund 573 employees who will support VHA operations in Fiscal Year 2000. Transfers of $415,000 and $7.1 million in reimbursements will supplement these funds.

This request is somewhat different from past years in that it includes reimbursement authority for activities related to the Facilities Management Service-delivery Office. Facilities Management will begin to receive reimbursement from VHA, VBA and NCA for field-related project management.

This reimbursement will allow VA to use appropriated funds to hire additional staff in the areas of quality management and performance measurement. Capital policy activities will continue to be funded by the appropriation.

On VBA’s Budget

For five years, I have traveled throughout this country, first as the Secretary of the Army and later as the Secretary of Veterans Affairs, talking with servicemembers and veterans. I never fail to hear from veterans about issues of veterans benefits. And, every veteran applying for benefits is concerned about the length and quality of the decision-making process. I am a lawyer, and my profession has a saying, "Justice delayed is Justice denied." This means that, in effect, for every day a decision is delayed, that benefit is, in fact, denied.

Yet, timeliness is not the only criteria. It is of no use to our veterans for us to process their claims with record speed if we get it wrong. Accuracy is also critical. The number of appeals and remands for additional information take up too much staff time, and, more importantly, too much of our veterans’ time.

This budget emphasizes a commitment to restoring the Veterans Benefits Administration’s credibility and trust. Through several leadership initiatives, VA seeks to reverse negative perceptions and make the goal of "world class customer service" a reality.

The Veterans Benefits Administration has developed four overall themes that it intends to address. These include:

restoring VBA credibility and trust;

achieving dramatic progress in improving performance;

building knowledge regarding program outcomes; and

establishing a rational resource acquisition and investment approach.

The Balanced Scorecard is VBA’s centerpiece for establishing a clear process for setting strategic objectives and priorities and for measuring the progress they have achieved. VBA’s FY 2000 budget request is $860 million and 11,437 full-time equivalent employees or FTE. This represents an increase of $49 million and 164 FTE above the 1999 level. By combining this increase in the number of employees with positions available due to efficiencies in other areas, VBA will be able to increase its number of benefits adjudicators by 440.

Demographics indicate that many of our experienced employees will be retiring within the next five to eight years. In order to avoid a two to three year skill gap, which will exacerbate our service-delivery challenges, we must stabilize the Compensation and Pension workforce for the future by hiring and training additional resources immediately, before the actual losses occur.

Our compensation and pension objectives include working towards the goals of completing rating-related actions in 74 average processing days, completing non-rating actions in 17 average processing days, achieving 96 percent national accuracy rate for core adjudicative rating work, and attaining 90 percent overall satisfaction among veterans with the way claims are handled.

Besides the electronic claims processing pilot project currently being tested, here are some other initiatives we are taking to meet these goals:

We have developed a multi-year initiative, which requires funding, for four comprehensive training, performance support, and certification systems for service-delivery positions. The four systems are for new rating specialists; veterans service representatives; advanced rating specialists; and decision-review officers.

We are currently developing formal partnership agreements with veterans service organizations, both at the national and local level. The partnership agreements will allow us to train service organization representatives to properly submit fully developed claims and will allow them to access VBA information systems. This will allow VBA employees to devote their time to decision-making, not claims development.

We are asking for funds to continue an initiative that will provide claims development, disability examinations, and rating decisions for service persons awaiting discharge from active duty. VA plans to have transition teams present at each of the 20 largest military separation points in the U.S. and to support, on a part-time basis, about 30 additional sites. This should allow VA to reach about 80 percent of all DoD separatees.

Our Systematic Technical Accuracy Review, or STAR, program will improve the accuracy of C&P claims processing by implementing a new national accuracy review program to provide current and diagnostic information about the accuracy of the work being produced at VA regional offices. We have requested funds for additional staffing, the creation of a database, and administrative expenses to aggressively implement this program.

VBA intends to merge Adjudication and Veterans Services Divisions in all of its regional offices. Through this program, called the "Conversion to Service Center" initiative, veterans will interact directly with the VA employees processing their claims. They will receive more specific information on their claims’ status, and they will also know what evidence is needed for decisions and what they can do to expedite action.

Funds requested for the enhancement of education activities include providing for expanding imaging technology. Imaging technology now in use for claims processing in Atlanta and St. Louis will be extended to Muskogee and Buffalo throughout Fiscal Year 2000.

VBA will contract for an A-76 study in 1999 to ensure the most cost-effective approach for disposing of foreclosed properties and conducting property management activities. This study will include a comparative analysis of selling foreclosed properties for cash versus direct VA financing. The budget request for the housing program assumes that, if it is cost effective, VA will join other Federal housing loan guaranty programs and eliminate the in-house home-loan property management and disposal activities of foreclosed homes by using discretionary authority current law grants the Department.

Funding has also been included in this budget to provide for financial accounting improvements the housing program needs. When completed, these improvements will enable the Loan Guaranty general ledger system to meet Federal Financial Management Integrity Act requirements. This is necessary in order for VA to achieve an unqualified audit opinion on their annual financial statements.

Administrative expenses to support the insurance program are made available from excess earnings from the National Service Life Insurance, United States Government Life Insurance and Veterans Special Life Insurance programs.

Also included for this program is a new initiative to promote insurance self-service. The insurance program has experienced significant success with its interactive voice response system. This initiative will be the next step in expanding veterans’ direct access to their insurance records and benefits.

In this budget, we are requesting $10 million to expand a current on-going pilot program on electronic claims processing. VBA is working with a consortium of five companies to develop an electronic work environment through imaging and other technologies. We expect to see improvements in customer service, processing timeliness and accuracy as a result. If successful, this demonstration project will pave the way for a significant reengineering of how claims are processed.

VA’s benefits programs provide assistance to veterans in recognition of their service to their country and to aid their transition to civilian life. The Administration is requesting $21.6 billion to support FY 2000 compensation payments to 2.3 million veterans, 300,000 survivors and 633 children of Vietnam veterans who were born with spina bifida, and to support pension payments to 381,000 veterans and 268,000 survivors.

We propose to provide a cost-of-living adjustment, or COLA, based on the change in the Consumer Price Index, to all compensation beneficiaries, including spouses and children receiving dependency and indemnity compensation. The percentage of the COLA is currently estimated at 2.4 percent, which is the same percentage that will be provided, under current law, to veterans pension and Social Security recipients. The increase would be effective December 1, 1999, and would cost an estimated $293 million during 2000.

If Congress approves, VA will pay full disability benefits to Filipino veterans residing in the United States who currently receive benefits at half the level that U.S. veterans receive. The cost of this legislation is estimated to be $25 million over five years.

VA also proposes to charge a fee to lenders participating in VA’s Home Loan Program. The fee would give VA the authority to charge lenders a fee of $25 for each VA loan that is guaranteed. The fees would be earmarked for use in developing, maintaining, and enhancing a VA Loan Information System that would interact with the information systems used by lenders.

Also relating to benefits, an appropriation of $1.5 billion is being requested for the Readjustment Benefits program. The money will provide education opportunities to veterans and eligible dependents and for various special assistance programs for disabled veterans.

Education benefits will be provided for about 450,000 trainees in FY 2000 including 281,000 training under the Montgomery G.I. Bill. This request includes funds for the annual Consumer Price Index adjustment, which is estimated to be 1.8 percent effective October 1, 1999, for education programs.

On NCA’s Budget

In Fiscal Year 1998, approximately 550,000 veterans died—nearly 1,500 a day. The National Cemetery Administration estimates that the annual number of veterans’ deaths will peak in the year 2008 before beginning to decrease. NCA is preparing for this increase by building national cemeteries, extending the service life of existing cemeteries, and encouraging states to build state veterans cemeteries.

Our request for the NCA continues to position VA to meet these future requirements. The request includes funding and new employees to address the Fiscal Year 2000 growth in interment workloads at existing cemeteries, including anticipated growth at the new Tahoma National Cemetery. This cemetery will experience the accelerated workload increase typical of a new cemetery, which is far in excess of the annual growth rates of mature cemeteries.

It includes additional funding and FTE to continue the activation of the new Cleveland-area national cemetery, and for the first full year of operations at the new Abraham Lincoln National Cemetery near Chicago, the new Dallas/Ft. Worth National Cemetery, and the new Saratoga National Cemetery near Albany, NY.

It also includes funding to replace some cemetery equipment that has exceeded its useful life, for customer service initiatives, and to cover the increased cost of an integrated data communications project.

V. Additional Funding Requests

For General Administration

VA is asking for $206 million in funding for the Office of the Secretary, six Assistant Secretaries and three VA-level staff offices. This request, along with $4.7 million associated with credit reform funding, will provide a total resource level of $210.7 million.

When compared to the original Fiscal Year 1999 appropriation, the

FY 2000 request is $7 million higher. The budget authority, along with $117 million in estimated reimbursements, will provide for an estimated total authority for obligations of $323 million in FY 2000. FTE will increase by 111 in FY 2000 from the 1999 current estimate of 2,490. This increase occurs primarily in the reimbursable activities.

Here are some of the areas where we will use this increased funding and number of employees.

For the Board of Veterans' Appeals

We are requesting $41.5 million in funding for the Board of Veterans’ Appeals for Fiscal Year 2000. The Board's marked improvement in timeliness, increase in productivity, and reduction of the appeals backlog in Fiscal Years 1995 through 1998 exceeded our most optimistic expectations.

This level of funding will give us the opportunity to continue to improve our timeliness in this area. BVA and VBA have adopted a joint performance indicator that is a system-wide measure of how long it takes to resolve an appeal made by a veteran. In FY 2000, we project that it will take an average of 545 days—45 fewer days than we anticipated it to take in 1999.

For the Office of Information and Technology

This is the first budget request since the reorganization of the Office of Financial Management that resulted in the information management function being moved to the newly created Office of Information and Technology.

VA’s newly created Office of Information and Technology is requesting budget authority of $21.3 million and an average employment of 217 to support VA Information Technology policy and program assistance, the VACO Campus Office Automation Platform and Local Area Network, and other efforts. The Austin Automation Center is separately supported by the Franchise Fund. Budget authority and $43.1 million in net reimbursements will provide an estimated obligation availability of $64.4 million in FY 2000.

The Department is on schedule in meeting the Y2K challenge. In FY 1999, we have met the timeframes for bringing all of our systems into production by March. This gives us nine months to address any remaining issues.

For the Office of Human Resources and Administration

The Office of Human Resources and Administration (HR & A) is requesting $105.4 million in total obligation authority and an average employment figure of 806. The requested budget authority is $48.7 million. Included in this figure is $450,000 for program oversight of the arming of VA police officers.

The total figure for HR&A reimbursements is $56.7 million. This includes $28.3 million and 235 FTE for HR LINK$ and $27.7 million and 260 FTE for the Office of Resolution Management (ORM). In FY 2000, the Department is again requesting that the operations of ORM and Office of Employment Discrimination Complaint Adjudication (OEDCA) located in the Office of the Secretary be funded through reimbursement from its customers.

In summary, a total appropriation of $912.4 million is requested for the General Operating Expenses (GOE), $706.4 for VBA and $206 million for General Administration in FY 2000. This funding level, combined with $158.1 million of administrative costs associated with VA’s credit programs, which are funded in the loan program accounts under credit reform provisions; $10.7 million in reimbursements from the Compensation and Pensions account for costs associated with the implementation of the Omnibus Budget Reconciliation Act of 1990 as amended; and $36.8 million from insurance funds’ excess revenues, together with other reimbursable authority, will provide $1.255 billion to support operations in the GOE account.

On the Office of the Inspector General’s Budget

To support the Office of the Inspector General in FY 2000, $43.2 million and an average employment of 374 FTE are requested. This represents an increase of $7.2 million and an increase of 12 FTE from the 1999 resource level. The increase in budget authority is primarily due to contracting out of financial audit functions and, increases associated with acquiring additional FTE. Contracting out the financial audit will free up 39 FTE. These actions will enable the OIG to staff new initiatives and focus on several priority audits and investigations.

VI. Other Issues

The VA Capital Investment Board

The Department formally established the VA Capital Investment Board (CIB) in July 1997 and produced the VA’s first Capital Plan in 1999. The CIB’s membership consists of top management from throughout the Department. The CIB was established primarily to ensure that all significant capital investments are based on sound business principles and also support the VA’s strategic and performance goals.

Recognizing the need to enhance capital asset planning for FY 2000, we have initiated a new capital investment planning process to improve the selection methodology for all significant capital assets, including construction, equipment, and information technology, in support of the budget request.

Capital investment proposals that meet specified thresholds (such as major construction projects, equipment, leases and information technology) are scored on how well the project application addresses the 20 sub-attributes of five major criteria.

The five major criteria are: One-VA Customer Service, Return on Taxpayer Investment, High Performing Work Force, Risk, and Comparison to Alternatives. The first three criteria relate to the Department’s strategic goals, while the last two address improved business practices.

All significant capital investment proposals that are requested in the FY 2000 budget have been scored and ranked by the board to ensure that they meet the VA’s strategic goals and are sound investments.

The Department capital planning process will be continually refined in order to meet the constantly changing needs of the Department.

Major and Minor Construction

I am requesting new budget authority totaling $60 million for the major construction program. The major construction request includes funding for a surgical suite project at Kansas City, MO; a spinal cord injury and rehabilitation project at Tampa, FL; a patient environment project at Murfreesboro, TN; and a facility rightsizing and gravesite development project at Leavenworth, KS. Additional funds are provided to remove asbestos from Department-owned buildings and to support advanced planning and design activities.

We are also requesting new budget authority totaling $175 million for VA’s minor construction program. The request will be used to make improvements to ambulatory care settings, patient environment, and VA’s aging infrastructure. Funds are also requested for nursing home care, clinical improvements, correction of code deficiencies in existing facilities, and the elimination of fire and safety deficiencies.

Funds requested in the minor construction budget would also support VBA construction requirements and NCA gravesite development and improvements to existing National Cemetery Administration roads and buildings.

State Extended Care Facilities and State Veterans Cemeteries

The FY 2000 request of $40 million for the Grants for the Construction of State Extended Care Facilities will provide funding to assist States to establish new, or renovate existing nursing homes and domiciliaries; and the FY 2000 request of $11 million for the Grants for the Construction of State Veterans Cemeteries will provide funding to assist States to establish, expand, or improve State veterans cemeteries.

VII. Conclusion

Mr. Chairman, veterans from all periods of service should be satisfied that this budget is a budget that protects their interests and lives up to the nation’s commitment to them.

I want to thank the members and staffs for your continued interest in our Department. I look forward to continuing to work with you on behalf of our nation’s veterans and their families. We owe our veterans the best service we can provide.

Veterans and their family members who wish to contact the Department regarding a claim, benefits, or services, may call VA Toll-Free at 1 (800) 827-1000 or 1 (800) 829-4833 [TDD], orContact the VAvia the web.